How Search Engines Make Money

Too often, web entrepreneurs today think of search as a one-way business, focusing solely on how to make money off of the search engines without understanding how search engines also need to make money in order to survive and thrive.

A special report from the Search Engine Strategies 2003 Conference, August 18-21, San Jose, CA.

Those attending the session, "Search Economics, Search Monetization Strategies," at the Search Engine Strategies conference in San Jose this past August, heard representatives from Google, Yahoo, AskJeeves, and LookSmart give their side of the story. Each one spoke on how their company makes money from search, the economics and business of search in general, along with the factors for their own growth and monetization.

"From the point of view on Wall Street, search has been a great source of revenues and profit," said moderator Safa Rashtchy, Senior Research Analyst for U.S Bancorp Piper Jaffray. All four companies on the panel concurred, each reporting huge gains from the previous year.

"We are increasingly seeing companies -- that before were only doing brand types of advertising -- embrace search marketing as a good venue for them to get users and get business as well," observed Sheryl Sandberg, Vice President, Global Online Sales and Operations for Google.

Some of the core components of a search engine's monetization approach include the following:

Relevancy before monetization. For some portals, search is their core business. For others, like Yahoo or AOL, it is part of a much broader business. To achieve maximum benefit out of any monetization strategy, a search engine company must keep the priority on relevancy (and diversity) of results; an updated, user-friendly interface; ever-increasing inventory; and improving the search tool's understanding of the audience's query type.

Provide unique search technologies. A search engine has to consider what differentiates its search product from others, and whether or not it clearly provides a perceived value to both search users and advertisers.

One of AskJeeves' challenges was how to differentiate itself from the most well-know search engine - Google - by doing something unique with its own search product that people find appealing. "What differentiates us is that our audience is used to giving broader type queries," said Jim Diaz, SVP of Sales and Business Development for AskJeeves. "A substantial majority of people that come to our site will ask more than three words in a typical keyword query. That's substantially higher - even off the charts - compared to most search engines, where you typically get one or two queries."

"We're not trying to out-Google Google," added Diaz. "Unless your product is different and offers something unique to the user, it's going to be very difficult to make a name for yourself and stick around in the long-term."

Encourage commercial search. Commercial search accounts for 30% of all search queries, according to Rashtchy's own research. However, the search engines find these queries to be just as complex as their non-commercial counterparts. "Search users articulate wide range of commercial needs," said Tim Cadogan, VP of Search for Yahoo Search. "That involves showing a decent quantity of relevant results, not just one or a couple. And for a significant portion of queries, users are expressing needs that businesses satisfy best."

Present a diversity of vendors, partners, products, and sales channels. All search engine companies have created paid inclusion or paid placement programs to obtain broader reach for more targeted advertising audiences.

Offer affordable or value-oriented pricing models. While search engines make no bones about going after the big fish, monetization strategies rely heavily on expanding opportunities for the majority of businesses. "We also have the opportunity for small-to-medium advertisers to sign up and get ads on their pages," stated Sandberg. "We're already seeing people who had pages on the Web - that they were not able to monetize before - are now able to monetize and target for the first time."

Motivate advertisers to improve content and conversions. "There are always a lot more advertisers that want to show up for a commercial query than there is space available," said Tony Mamone, Vice President of Small Business Services for LookSmart. "By charging for that content, you're motivating that advertiser to improve on their own site. They're paying for that click, for the leads that are coming through. They're not going to want all-you-can-eat; they're going to want all that's relevant. It also calls out the bottom performers over time. And for those who request help, you can provide them with a team to assist with optimizing their content and making sure it is relevant and more productive."

Globalize your ad market. Obtain a broader reach geographically and provide localized services for each region. "More than half of Google's 200 million searches each day are done internationally, outside of the US and Canada," said Sandberg. "Similarly, our advertising program has also gone global. At Google, you can target your ads for any country in the world. You can also pick your keywords in any language in the world. We even run our international advertising program with localized customer support in eleven languages and we take payment in six currencies."

Keep operational expenses cost effective. Infrastructure to carry for so much search traffic can be very costly if not carefully supervised. Search engine companies must regular monitor peak usage times on their Web servers; improve on their software efficiency with Web servers; and limit the size and complexity of database sizes and complexity of the search nodes.

While many individual performance models were described, paid inclusion was a particular issue of contention between among audience members and the panelists. The search engines touted paid inclusion being one of the most effective monetization strategies that successfully delivers more relevant results. Yet some in the audience expressed concerns on how it might be affecting the relevancy of search results. "How can search results be relevant as Google's results if paid inclusion is such as important part of each of your programs?" one audience member asked.

"We believe paid inclusion actually helps us with commercial relevance," responded LookSmart's Mamone. "The best set of results sometimes is actually a set of results is from advertisers. Advertisers can equate to relevance for commercial query for the user."

Mamone also argued for paid inclusion having a self-regulating effect that creates more responsible advertisers. "If the listing does not lead to a conversion for the advertiser, then the advertiser will get out of that search result on their own. Whereas by contrast, if you had used techniques to show up through non-commercial areas (and not paying for volume), it is an 'all-you-can-eat' scenario that involves no responsibility. Through the paid inclusion model, the advertiser does have a responsibility to make sure the results are working for them."

Mamone addressed the flip side to that argument: knowing when a query is commercial and when the query is non-commercial. "It is something we've spent a lot of R&D around. When we have paid results, we want to make sure they only show up under paid queries. It is something we've gotten substantially better at over time in the last three years, but there's still progress to be made there."

"For Yahoo, we find paid inclusion helps drive quality of search results up," stated Cadogan. "Sites that have deep content, not normally accessed by crawlers, can have their information presented to the users."

Yahoo differed with LookSmart's point on commercial queries, stating that paid inclusion URLs don't go through any different relevancy process. "They are treated exactly the same way, as all the other URLs," replied Cadogan. "We're not worried about if a link is commercial or non-commercial, just as long as it is relevant. We trust the algorithim, which treats everything the same way and doesn't know if it's paid or not. We really view it as a benefit, rather than something we have to differentiate from."

When asked of Yahoo's intention to implement Inktomi's paid inclusion program on Yahoo, Cadogan remarked that it hasn't happened yet nor will it happen in the immediate future. "But we are looking at plans on when to do it," he said.

Google was the sole company on the panel that has no paid inclusion program, and reiterated that the company has no plans or intentions of incorporating one. "We believe the most relevant results come from naturally crawling the Web," said Google's Sandberg. "We do want to crawl the deep content and the dynamic pages, and we believe that by continually improving on Google's span and reach of our crawl, as well as how often we crawl, we can continue to provide relevant results for our users."

Cadogan offered some parting words for the audience on how major search engines view their monetization strategy as to the benefit of their advertisers, partners and users. "A search engine company's focus on the best user search experience first; the monetization strategy is not something that goes along side of the user experience. It is part of the user experience."

Grant Crowell is the CEO and Creative Director at Grantastic Designs, Inc., founded in 1993 in Honolulu. He has 15 combined years of experience in the fields of print and online design, newspaper journalism, public relations, and publications.

About the author

Grant Crowell has worked in the online marketing industry since 1996, providing digital strategies and development to enterprises and entrepreneurs of all sizes, including video, search marketing/SEO, e-commerce, social media and social business, usability, reputation management, and customer experience. You can view more of Grant's profile at about.me/grantcrowell.